The Final Regulations for basis reporting (TD 9504) established some very specific requirements for transfer statements in the case of inherited securities. An initial transfer statement is required upon inheritance to indicate whether the inherited securities are covered securities under the cost basis rules.
Then, all subsequent transfers of the inherited securities are required to indicate that the security is inherited and whether it is a covered security. If securities are noncovered as to the decedent, the shares will remain noncovered in the hands of the beneficiary, even if the beneficiary receives a step-up in basis and is allowed to treat the date of death as the acquisition date of the security.
It’s worth checking to see that the transfer statement form layouts are updated to accommodate all of the required information – the general transfer statement information plus the inherited security information.
General transfer statement information includes:
- Date the statement is furnished
- Name, address and telephone number of the person furnishing the statement
- Name, address and telephone number of the broker receiving custody of the security
- Name and account number of the customer from which the security is transferred
- Name and account number of the customer to which the security is transferred
- Security identifiers: CUSIP number (or other security identifier number as may be designated for use by publication in the Federal Register or Internal Revenue Bulletin), the quantity of shares or units and classification of the security
- Date the transfer was initiated and settlement date if known when furnishing the statement
- Total adjusted basis of the security and original acquisition date of the security (and, if applicable, holding period adjustment required by Section 1091).
Inherited security transfer statement additional information includes:
- An indicator that the security was a covered security
- An indicator that the security was inherited
- Date of death, reported as the acquisition date
- Total adjusted basis of the security based on FMV on the date of death, unless the executor or other fiduciary has provided different basis information adjusted by any subsequent issuer-announced changes
- Information necessary to apply Section 1223(9) relating to the holding period of property acquired from a decedent that is sold or otherwise disposed of within one year after the death of the decedent.
If a security is transferred from a decedent or a decedent’s estate to satisfy a cash legacy, such as to fund a scholarship at a college or university, the inheritance transfer statement requirements do not apply. Instead, follow the general transfer statement requirements listed above.